Earlier this month the government published a series of consultation documents called Making Tax Digital. If adopted, they will mean a radical rethinking of the Self Assessment tax system.
We’ve already seen what Making Tax Digital means for small business owners. But what about landlords?
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The most important change that Making Tax Digital will bring is a move away from paper tax returns to an online-only system. Taxpayers will have to use software to keep records and file their accounts, along with HMRC’s revamped online portal.
However, HMRC will not be building the software themselves. Instead, landlords will have to use third party apps built by companies like Xero, Clearbooks, or Free Agent.
There will be some exceptions to this. The government’s consultation documents mention the ‘digitally excluded’, which includes those who can prove to HMRC that they are unable to use the online services, for example because they are based in an area without broadband.
Payment in advance
The option to pay tax in advance instalments may be opened up to landlords, as well as other self-employed people and small businesses. In practice, this means you will be able to make payments on a monthly or quarterly (or, potentially, even weekly) basis in advance of a bill, by Direct Debit.
This is particularly useful for taxpayers who wish to spread the cost of their bill, or to even out property void periods.
Accounting for individual properties
Another major change concerns landlords with more than one property. The Making Tax Digital proposals will mean that these individuals may have to report income and expenditure for each individual property, along with addresses, rather than bundling them all into one set of figures. Clearly, this may entail more reporting work.
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Given that Making Tax Digital is in consultation, HMRC is also asking a series of questions as well as proposing new practices. One of these focuses on security deposits.
The government is asking stakeholders to say whether they think deposits should be reported as income when they are received, or when the landlord becomes entitled to all or part of the money.
Aside from the digitally excluded, there is one important exemption to the Making Tax Digital proposals.
The plans will not apply to landlords with an annual rental income of less than £10,000, in line with the same exemption for the self-employed and small businesses. In practice, this will exempt a significant proportion of UK landlords from Making Tax Digital.
What do you think of the ‘Making Tax Digital’ proposals? Let us know below.